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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


May 1st 2014 SunEdison
Nasdaq Symbol: SUNE
Industry: Solar power
Price as of 4/30: $19.23

The broader market continues to hold up even as internally many sectors are going through corrections. The biotechs went through their correction over the last month, but have stabilized as of late. The banks have pulled back while many of the highflying techs likes Amazon, Twitter, 3D Systems, Facebook, Tesla, and others have come back to earth. The old tech stocks have perked up including IBM, HP, Microsoft, and Apple if Apple is considered old tech. The broader market remains stuck in a rut near the unchanged level while the Nasdaq and small cap indexes are in the red for the year. It feels like the markets are still digesting the big gains from last year. The defensive utility sector remains the top performing sector up 14% with energy a distant second up only 5.2%. Speaking of energy, the solar power industry in general has been a tough place to invest with very few companies able to turn a profit. This week we'll highlight a solar power company receiving some recent recommendations from a couple top hedge fund managers like Leon Cooperman & David Einhorn. The stock of the week is, SunEdison. SunEdison is a leading provider in solar modules to homeowners, businesses and utilities. Strong demand for solar panels has allowed the company to structure a divestiture of non-core assets like their semiconductor business to improve shareholder returns. SunEdison is not a conservative investment, but with strong demand, a growing backlog and shareholder friendly management team, SunEdison looks like an interesting investment in this recent pullback.
In a recent speech in New York City, David Einhorn made news by recommending SunEdison with a price target of $34 a share or more than 70% return from current levels. David Einhorn has two reasons to invest in solar power. First, solar prices are falling while conventional electricity prices are rising. Even as solar prices fall for consumers, the average cost of a solar panel has fallen by even more for manufactures. Average residential retail electricity prices, meanwhile, have increased by the rate of inflation over the past couple of years. With solar becoming competitive against the grid in more and more places, solar companies like SunEdison will likely see larger markets and growing margins in the future. The large pipeline or backlog in orders for SunEdison's solar modules are increasing exponentially providing more certain profits down the road. Thanks to the increasing demand, and stability of business, SunEdision will spin off their semiconductor business in a $250 million IPO sometime this year bolstering the balance sheet for future projects. Following the spin-off, David Einhorn believes the remaining company will be worth around $34 a share, or over 70% higher than current levels.
SunEdison is not a cheap stock and can't be valued on many traditional parameters. Currently the company is losing money, looking to turn a profit next year. The stock's price to sales ratio is not excessive selling for 1.3 times sales with a market cap of $5 billion. The balance sheet is not great with only $500 million in cash with $3.5 billion in debt, but the pending semiconductor spin off and reallocation of capital should bolstered the bottom line.
SunEdison is not a conservative investment, but the future for energy is in solar power and SunEdison seems to be making all the right moves to position the company to benefit from future demand in the US, Canada, and other parts of the World including Saudi Arabia.